China's economic growth has slowed in the third quarter but the long-term outlook remains positive. Photograph: Reuters

China's spectacular economic growth slowed to 9.6% in the third quarter, suggesting the world's second largest economy was finding a more sustainable pace, analysts said.

Consumer inflation also edged up to 3.6% in September, well above the year's target of 3% and a 23 month high but still in line with expectations, according to figures released today by the National Bureau of Statistics.

Most of the pressure came from food prices: up 8% year on year. Several analysts predicted it would continue to rise this month.

The figures come two days after the government surprised many with its first interest rate rise in almost three years, which some thought might presage higher inflation figures today.

China's massive stimulus package, designed to fight off the effects of the global financial crisis, saw growth soar to 11.9% year on year in the first quarter of this year.

Industrial growth also slowed markedly. The increase in factory output, measured by added value, fell from 15.9% in Q2 to 13.5% in Q3. The first quarter increase was 19.6%.

"In the very, very short-term, a slowing Chinese economy will bring down global growth and have a particular impact on economies like Australia which are so reliant on Chinese demand," said Alistair Thornton, China analyst at IHS Global Insight.

"But in terms of the long-term dynamics it's a very positive development … Nothing is worse for the global economy than an unsustainable Chinese economy.

"Going forward we won't see the double-digit growth rates we have seen over the past few decades, but that's a good thing."

He said that if the government succeeded in restructuring the economy – "a big if" – China could continue to grow at a healthy rate for much longer.

Although Tuesday's interest rate hike spooked global markets, they quickly recovered from what analysts described as a kneejerk reaction by traders.

Most analysts believe the 25 basis point increase in the benchmark interest rate was aimed at curbing the property and other asset markets rather than heading off a rise in inflation, since it would have little impact on food prices. The government has already increased reserve ratios to rein in rising property prices.

Tao Wang, China economist with UBS in Beijing, told Reuters: "I do not think the central bank will raise interest rates again this year, but we think there may be three hikes next year."

Tom Orlik, a Beijing-based analyst for Stone & McCarthy Research Associates, said the rate increase was the first sign that the government was getting serious about rebalancing the economy. Officials have long acknowledged the need to boost domestic consumption and shift away from an investment-led model.

But Orlik cautioned: "The third quarter growth data shows that the government can step on the gas, but it does not show that they are capable of changing direction. Strong investment supported by easy money, record exports underpinned by a depreciating yuan, and retail sales that are driven by incentives to spend represents more of the same, not a shift in the growth model."